Using calculator to determine payroll

How to Get Started with Payroll for Your Small Business

Setting up payroll for the first time is a rite of passage for entrepreneurs, but it can also be a challenge. It’s important to lay a solid foundation that will work for your business now and going forward. Here are four steps to setting up payroll for your small business.

1. Sign up for Employer Identification Numbers

The government will need to track your company for payroll and employment tax purposes, so the first thing to do is to make sure that you register for your employer identification number (EIN) with the federal government. This ID is what legitimizes you as an employer, and you’ll need it later for payroll, so make sure to do this first.

Beyond the EIN at the federal level, some companies are required to have a unique tax ID at the state and local level, as well. Check with your local and state governments to determine whether this applies to you.

2. Classify Employees

An employee’s status determines if and how much of their paycheck is subject to tax and withholdings. For example, the number of full-time employees you have will determine whether you’re required to offer healthcare; you will need to withhold and pay employment taxes for full-time and part-time employees; and you typically don’t have to withhold anything from independent contractors, who are responsible for those taxes themselves.

Determine how your workers are classified for your business. It’s not uncommon to have a mixture of the three types. Be aware of ways a worker’s classification impacts your management responsibilities and work expectations Independent contractors typically have more flexibility than employees, including deciding how the work will be done.

With employees, however, you’re able to set their schedule and manage all aspects of the work they perform.

If you have questions about whether a worker is an employee or contractor, click here.

3. Decide on your Pay Period

When you’re setting up payroll, you get to decide how frequently your employees will receive their paychecks. The most common pay period is bi-weekly (one paycheck every two weeks), followed by weekly. There are advantages to both, but make sure to choose a pay schedule that works for your business and your employees.

4. Select a Payroll Software

As you start to run payroll for your small business, you’ll quickly realize that there’s a lot that goes into it. From calculating paychecks to paying taxes, payroll can become overwhelming. That’s why it’s so beneficial to take advantage of payroll software, like Workful.

Workful allows you to minimize the time spent administering payroll by syncing your employees’ timesheets with each payroll run, calculating tax withholdings and deductions, and determining your tax liability. Because you’ll be spending less time running payroll, you’ll be able to spend more time growing your business.